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Digital Digital Strategy
7 minute read

How to Deal With Holiday Retail Supply Chain Shortages and Prepare for Future Disruptions

As the holiday season approaches, continued low inventories, backlogged freight and long lead times have the retail industry bracing for predicted shortages during the usually lucrative holiday season. Logistics aside, the biggest challenge facing retail supply chain this holiday season is shifting consumer expectations created by the pandemic. This article provides tactics to consider for more agility and flexibility with your supply chain for the future.

In This Article

In 2020, we witnessed the retail supply chain buckling under the strain of increased consumer demand. Some shortages made sense, while others – like toilet paper – left us puzzled. The event was unprecedented and nearly impossible for retailers to predict and plan alternative solutions. 

Many retailers have already implemented the digital technology to support flexible fulfillment including ship-to-store, BOPIS and ship-from-store. However, shifting consumer expectations are resulting in demand for a "buy anywhere, fulfill anywhere, return anywhere model," including last-mile delivery.

Before the pandemic, retail supply chain resiliency had never been tested. Certainly, retailers have marketed sale events which would temporarily lower inventory and reduce demand for specific products since consumers had “stocked up,” but fear of shortages and shelter-in-place overconsumption created a near-panic, sustained cycle of “pantry loading.” The tactics retailers have employed over the past few years, like cloud-based omnichannel platforms, AI-driven analytics and IoT sensors, are built around consumer behavior triggers that provide insight into demand, so the retailer can then plan supply appropriately. The pandemic completely changed customer behaviors and blew these predictive models apart.

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Brace for holiday inventory shortages

Big fluctuations in demand echo up and down the supply chain, creating a domino effect from product shortages at the retail level to handicapping the procurement of raw materials needed for manufacturing. As the holiday season approaches, supply chains continue to be burdened by challenges like port congestion creating a backlog of containers on docks and rising freight costs. According to logistics analytics company, Freightwaves, a record-breaking 73 container ships were waiting to be unloaded in the ports of California, as of late September, with a 215% rise in freight costs from China to the U.S. since the holiday season of 2020. Now a year later, the supply chain continues to recuperate, but low inventories and long lead times have the retail industry bracing for predicted shortages during the usually lucrative shopping season.

However, retail’s fourth quarter landscape is not entirely bleak. The rise of omnichannel consumer purchasing and “buy online, pick up in store” (BOPIS) models during the pandemic will contribute as much as 18-23% of the estimated total of $4.44 trillion in retail sales for 2021, according to the National Retail Federation. This total revenue estimate is up from $4.02 trillion in 2020.

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New expectations as a differentiator

Logistics aside, the biggest challenge facing retail supply chain this holiday season is shifting consumer expectations. Online usage during the pandemic lowered consumer tolerance for delivery times and increased their demand for no-cost shipping and returns. This not only raises the stakes for customer experience, it also strains retailer margins. Scarcity in the supply chain will likely drive up prices, challenging customer loyalty as consumers seek product alternatives or choose not to purchase at all. Contactless shopping and customer service will become the norm, rather than the exception. Even on-premise safety will become a concern for some consumers.

According to a recent report, a convenient omnichannel shopping experiences across in-store and online is the reason 60% of consumers will shop at one retailer over the other. The busy holiday season presents retailers with the opportunity to turn this consumer expectation into a competitive advantage by supplementing tactics expanded during the pandemic–ecommerce, BOPIS and home delivery–with highly focused consumer personalization. Whether a retailer uses a CRM system or has graduated to a customer data platform or digital experience platform, leveraging customer behavior data to personalize product browsing, purchase and fulfillment will be the key to enhancing experience during this shift in customer shopping preferences.

While it’s late in the year to consider implementing new technology solutions, there are tactics to consider for more agility and flexibility to your supply chain for the future.

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End-to-end supply chain visibility

It’s no secret that the access to real-time data and transparency into the breadth of the supply chain left the retailers vulnerable at the beginning of the pandemic. Without insight into all levels of the supply chain, there were simply no warning signs. 

In the past, we’ve advised retailers on the selection and implementation of advanced, multi-tiered inventory management systems integrated with a supply-chain analytics platform. This strategy delivers reliable, real-time data. Data necessary to predict areas of product vulnerability, introduce safeguards and create the supply chain agility to weather localized market disruptions or global pandemics.

At a higher level, managing vendors from production to shelf can also be made more efficient with the addition of a procurement platform to automate contract reconciliation, invoicing and payments, align services verification and manage supply chain costs, all from one platform.

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Control the data

Real-time inventory visibility is also critical for customer experience. As consumers lean into digital channels, they will carefully analyze multiple shopping options in order to more efficiently plan their store visits. 

This is where a unified commerce approach becomes critical. Aligning customer behaviors with inventory management not only provides an opportunity to capture new data to inform future predictive supply chain models, it also enhances customer experience and customer loyalty. Retailers who still rely on a patchwork of disparate point solutions or manual processes will struggle to reduce inconsistencies and product delays that erode the customer experience.

Selecting and implementing an appropriate platform that integrates customer data with inventory management depends on developing a sound strategy aligned with business goals. Is a Customer Data Platform appropriate or a Digital Experience Platform a better path? How do these platforms integrate with marketing needs and the inventory management systems? Which of the dozens of available platforms works best with current supply chain technology? Is a custom solution necessary? How are the services integrated into third-party, last-mile delivery services without giving up critical customer data?

These integrations enhance the end-to-end, AI-driven personalization that consumers expect. Retailers can provide contextual experiences built on data-driven insights across ecommerce and in-store interactions. These systems allow retailers to dynamically display the most relevant products and content based on location, past order history and personal preferences connecting consumers to the appropriate products faster. Coupled with an agile supply chain provides the ability to harness the power of automations, optimizing product delivery while scaling for accelerated or decelerated demand.

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Embrace consumer expectations

The technology-driven supply chain is just the beginning of a seamless omnichannel customer experience. Many retailers have already implemented the digital technology to support flexible fulfillment including ship-to-store, BOPIS and ship-from-store. However, shifting consumer expectations are resulting in demand for a "buy anywhere, fulfill anywhere, return anywhere model" including last-mile delivery. These create additional challenges in supply chain efficiency, visibility and accuracy.

While a large percentage of sales are expected to be digital, in-store sales are expected to make a comeback, with a new set of consumer expectations. To stay relevant, retailers must also reimagine the on-premise shopping experience, as well. For example, consumers have become accustomed to one-click digital checkout and are less tolerant of inefficient checkout experiences. According to a consumer study done by Oracle Retail, showed that 66% of the retail shoppers cited contactless checkout as an important factor for their future in-store visits. 

Leveraging this unified information is critical to successful customer service experiences as well. Customer service agents and store associates have higher visibility into browsing and purchase histories, as well as real-time availability information, in order to design a successful resolution and keep customers coming back. These interactions may come from any of the channels customers have grown accustomed, like chatbots, video chat, voice applications and even social media, requiring additional integrations to create actionable insights to improve revenues and reduce costs.

As the digital and in-store shopping experiences blur, hybrid buying and fulfillment experiences will continue to evolve. Without supply chain data today, it’s likely too late to make predictions for the 2021 shopping season, but retailers can begin to consolidate their actionable data to leverage for more accurate supply chain predictions in future seasons, pandemic or not.